Developer China South City stock sinks 37% to record low in Hong Kong after warning of multiple bond defaults

The developer crashed 37 per cent as trading resumed after the Lunar New Year break, extending the slump to 76 per cent over past 12 months
The firm warned last week it would not be able to pay interests on bonds maturing in April and October this year

China property

Mia Castagnone

Published: 10:02am, 14 Feb 2024

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Chinese developer China South City Holdings plunged 37 per cent to an all-time low after it warned last week that it would default on multiple bonds maturing this year, having earlier failed to win reprieve from creditors to postpone repayment.

The Shenzhen-based company tumbled to HK$0.134 on Wednesday in Hong Kong from HK$0.212 on Friday as trading resumed after a two-day Lunar New Year break, the lowest close since its listing in September 2009.

Today’s slump extended the stock’s loss over the past 12 months to about 76 per cent, and erased as much as HK$48.3 billion (US$6.17 billion) of market value from the stock’s all-time high of HK$4.35 in March 2014.

The cumulative effect of China’s crippled property market has put an increasing strain on the company’s working capital, it said. Sales had been below expectations and cash flow was only sufficient to fund daily operations, it added.

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China South City said its operations and financial situation have not yet sufficiently improved and that it would not be able to make the mandatory redemption on February 9 with respect to notes maturing in October 2024. It also said it would not be able to make an interest payment due on February 12 on a bond maturing in April 2o24.

China South City said the defaults could lead to failure of other payment obligations. This would “have a significant material adverse effect on our business, operations and financial condition, including possibly insolvency or other forms of restructuring,” the company said in the filing on Friday.

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The company in December had averted a default on an offshore debt after winning consent from creditors to extend the maturity of a US$235 million note maturing in July 2024 to August 2027, while reducing the annual coupon by half to 4.5 per cent. It however failed to get approvals to delay repayment on four other dollar bonds worth US$1.11 billion, all due in stages later this year.

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In the latest filing, the developer added it was also considering different options, including consent solicitation, schemes and exchange offers to address its financial woes.

China South City, which is backed by the Shenzhen local government, runs integrated logistics and wholesale shopping centre operations in several mainland Chinese cities including Shenzhen, Xian, Harbin and Zhengzhou.

Meanwhile, Hong Kong property developer Wang On Group said it had cut its holding in China South City bonds at a loss.

The firm sold US$8.4 million face amount of China South City notes on the open market for US$3.8 million from February 2 to 8, according to an exchange filing on February 8. As a result, Wang On Group expects to incur a HK$32.9 million (US$4.2 million) loss for the financial year ending March 31.

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